How to figure out wholesaling fee?

Question

How do I figure out what a good wholesaling price would be?

I'm in Missoula, Montana and I'm working with someone who did wholesaling for a year and charged $5,000. She's recommending that I do $3,000 in today's market.

But I keep hearing about people that wholesale for $10,000. I presume that this is in areas with higher demand, but it still makes me wonder how much I should be charging.

J Scott · Answer

It's not the wholesaler's job (or even within the wholesaler's ability) to determine how much equity should be left for the end-buyer.  It's the end-buyer's job to determine this and for the wholesaler to figure out through either asking or through trial-and-error.

Some end-buyers would likely be happy with 75%.  Some would rather have 65%.  And some (like me), don't think in terms of percentage of ARV.  If the wholesaler brings me a deal that's too thin, I'll tell him that -- and I may even tell him what I'm willing to pay.  Hopefully, the wholesaler will learn how I value properties and what criteria I'm using so that in the future he will price the property appropriately (or not bring properties that won't work for me).  He should be doing the same thing for every other buyer he works with.

Know your buyers, give them a deal that works for them, but no more than that.  I can promise you that the end-buyers are looking out for their best interests -- you don't need to do it for them.  You should be looking out for your best interests, which is maximizing your profit.

Aaron Mazzrillo · Answer

Where are you buying property at 23%~36% of ARV? This truly sounds like some guru sputum you have bought into and regurgitated here for others to enjoy. Unless that is 2005 ARV and the houses are in Detroit?

Chris Piper · Answer

Justin, here is how I figure my numbers. Maybe this will help you? I did an example too so you can see the numbers. Tweak the formula as needed.

FORMULA

ARV

*70%

-Repairs

-$3K Closing Costs and Points for Borrowing Funds

-Profit(=10% of ARV)

-Counter Offer Margin(=3% of ARV)

= Max Purchase Price

*Make initial offer of 65% of Max Purchase Price

EXAMPLE

$100,000 ARV

$70,000($100K X 70%)*70%

$18,000 -Repairs

$3,000 -$3K Closing Costs and Points for Borrowing Funds

$10,000 -Profit(=10% of ARV)

$ 3,000 -Counter Offer Margin(=3% of ARV)

$36,000= Max Purchase Price

-----------------------------------------------------------------------------------------

$100,000 X 70%

= $70,000 (Max buyer will have into the deal including repairs)

- $18,000 for repairs

= $52,000 (My price to buyers - 70% of ARV minus repairs)

- $3,000 closing costs(I try to negotiate as much of the closing costs from both closing away when doing a double close)

- $10,000 profit

- $3,000 counter offer margin(wiggle room)

$36,000= Max Purchase Price

*I Make my initial offer at 65% of my Max Purchase Price

Initial Offer= $23,400

Lamar Cannon · Answer

@Justin Foster  the best way to create WIN-WIN deals and make the max amount of money while doing it is to know exactly what your buyers would pay for that specific property in its current condition. It will take a little time and work to begin to learn this but once you do you will see your business skyrocket. (More moolah for marketing!). Some buyers use the formulas above others have their own.

Once you know this, use that as the baseline when negotiating with seller. If you know your buyers will pay 130k for that type of property, negotiate as far under that as you can. With seller and  BAM  the difference is your assignment fee.  Buyer gets a  deal, you make money, and seller gets paid

Does that make sense?

Alex Harris · Answer

I try to create win win solutions like mentioned above for everyone.  Bad wholesalers bring deals that don't leave profit for end buyers. Just focus on the numbers of the deal.  Once completed, think about how the end buyer is looking at the deal and place yourself in his shoes.  Is he getting the property at 70% of ARV and are your repair estimates valid/correct?  If so, figuring out your wholesale assignment fee should be easy.

(ARV * .7) - Repair costs - Assignment Fee = Max Offer

Or

(ARV * .7) - Repair Costs - (Your contract price) = Assignment fee

In saying that, you should ALWAYS know your repairs and ARV BEFORE making offers and getting deals under contract. If the deal works and you can squeeze $40k in as an assignment fee, you should (and maybe do a double closing). Either way, there is no set amount for an assignment fee as all properties and deals are different. A serious investor won't be angry with you as long as its a good investment for him and numbers work.

Arktavious Sally · Answer

@Justin Foster

Make as much as you can and still be able deliver a great deal to your buyer.

Account Closed · Answer

You can charge whatever  fee you want, but if you get no takers, then you know your fee is too high or the numbers of the property don't add up.

Aaron Mazzrillo · Answer

when I spoke at the BP Conference, an audience member asked what the best wholesale fee is. Before my co-speaker could answer, I cut in and said the right answer is as much as you can get.

Lamar Cannon · Answer

perfect answer @J  Scott !

Justin Foster · Answer

@Lamar Cannon

I hadn't even thought about that. Definitely makes sense and I'll make sure I find out what the people on my buyers list would be willing to pay. Once I actually get a buyers list.

How to figure out wholesaling fee?

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